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Oil rises to near $106 following dip

The price of oil rebounded Friday to near $106 a barrel, supported by continuing tensions in Egypt and the sharp drop of U.S. oil stocks reported earlier in the week.

By early afternoon in Europe, benchmark crude for August delivery was up 71 cents at $105.62 a barrel in electronic trading on the New York Mercantile Exchange. On Thursday, the Nymex contract fell $1.61 to close at $104.9 as profit-taking took hold after prices had hit their highest levels seen since April following two weeks of gains.

Oil prices had previously been buoyant after figures showed a dramatic drop in U.S. supplies of oil and gasoline over the past two weeks. Traders took that as a sign of rising demand in the world's largest economy. U.S. oil supplies have dropped 20.2 million barrels, which is slightly more than one day's consumption for the U.S. Gasoline supplies have fallen 4.3 million barrels.

"Steep declines have quickly rebounded leading us to believe that short term dips will be actively bought into as U.S. data remains supportive from a fundamental viewpoint," Sucden said.

Demonstrations in Cairo on Friday by supporters of ousted president Mohammed Morsi highlighted the instability of the political situation in Egypt, which controls the Suez Canal, a crucial transport route for oil and gas shipments from the Middle East.

"Uncertainty in Egypt is contributing to the current premium on crude benchmarks and with no clear signs of a resolution, instability could spread further in the region threatening oil supply," the Sucden report noted.

Gains were limited by Thursday's forecast by the International Energy Agency which said that rising oil production in the U.S. and Canada would help supplies outpace global oil demand next year.

Brent crude was up 51 cents at $108.24 on the ICE Futures exchange in London.